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Risk Sensing Underutilized for Threats to Business Strategy: Global Survey

The pace of innovation, increased regulation, damage to reputation and talent gaps are the leading risks to companies’ business strategy, according to a survey of C-level executives conducted with Forbes Insights on behalf of Deloitte Touche Tohmatsu Limited (DTTL). Nevertheless, many are not using risk-sensing tools to detect and monitor strategic risks, which could leave organizations vulnerable to business model disruption, shareholder activism and other challenges that could impact shareholder value.

Henry Ristuccia

“The majority of executives surveyed have risk-sensing capabilities in their organizations. However, these capabilities often overlook key elements, lack technical depth or leave the organization open to the very risks that risk sensing should be protecting against,” says Henry Ristuccia, a Deloitte Advisory partner in Deloitte & Touche LLP, and global Governance, Regulatory and Risk leader, DTTL.

The survey, Risk Sensing: The (Evolving) State of the Art, found that about 80% of the 155 C-level executives asked about their companies’ risk-sensing capabilities use risk-sensing tools. However, the tools are applied most often to financial risk (71%), compliance risk (66%) and operational risk (65%), and are used less often to detect and monitor risk to business strategy, referred to as strategic risk (57%).

When asked to name specific risk areas that will impact their business strategy over the next three years, survey respondents ranked pace of innovation (30%) and increased regulation (30%) as the main risks. Talent and reputation, at 25% and 24% respectively, also ranked high as future risks to strategy.

Executives from companies in the Americas and Europe, Middle East and Africa regions said their top risk with regard to strategy is nearly equally split between regulation and reputation. Executives from companies based in the Asia-Pacific region ranked the pace of innovation as the top risk affecting business strategy.

Risk sensing, which involves the use of human insights and advanced analytics capabilities to identify, analyze and monitor emerging risks, has become a key component of many organizations’ toolkit for managing risk.

The survey report found that two-thirds of respondents say they employ people with the knowledge needed to monitor, analyze and act on risk-sensing data, while about one-third (36%) are less certain that they have the right people. Given their deeper talent pool, executives from the largest companies surveyed (those with at least $5 billion in revenue) most often agreed that they do have the personnel in place for risk sensing. “It is the combination of technological capability and human insight, that when properly focused, gives risk sensing its detection and analytical powers,” observes Mr. Ristuccia. “The tools and the people who use them are both critical to success,” he adds.

Many executives believe both traditional and new tools are needed to have an effective risk-sensing program. But, when factoring in the pace of innovation risk, 49% of survey respondents indicate that using risk sensing to leverage data is the key way to mitigate the risk of being left behind.

“A starting point for monitoring strategic risks would be to identify the long-term objectives of the organization—those, that if negatively impacted, would alter the key forces that drive a company’s sector. Those forces can be organized into domains, such as economic, regulatory, customer, technological, operational, funding, and research and development, and include scientific, engineering, or other advances that could affect basic drivers of value, ” says Mr. Ristuccia.

About the Survey

To assess the state of risk sensing in large organizations, Forbes Insights, on behalf of DTTL, conducted a survey of 155 executives from companies representing every major industry and geographic region. The survey, conducted in May/June, 2015, targeted companies with revenue of at least $1 billion, and the report outlines an approach to developing and enhancing the risk-sensing process.

About Deloitte Insights

Deloitte’s Insights for C-suite executives and board members provide information and resources to help address the challenges of managing risk for both value creation and protection, as well as increasing compliance requirements.

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